T-Jat Systems 2006 Ltd. v. Expedia, Inc. (De), et Al.

REPLY BRIEF re MOTION to Dismiss for Failure to State a Claim

D. Del.December 1, 2016

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE T-JAT SYSTEMS 2006 LTD., Plaintiff, v. EXPEDIA, INC. (DE), EXPEDIA, INC. (WA), and ORBITZ WORLDWIDE, INC., Defendants. Case No. 16-cv-00581-RGA REPLY BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM K&L GATES LLP Steven L. Caponi, Esq. (#3484) 600 N. King Street Suite 901 Wilmington, DE 19801 Phone: (302) 416-7080 Email: steven.caponi@klgates.com -and- Theodore J. Angelis Ben Hellerstein K&L Gates LLP 925 Fourth Avenue, Suite 2900 Seattle, WA 98104 Telephone: (206) 623-7580 Email: theo.angelis@klgates.com ben.hellerstein@klgates.com Eric A. Prager K&L Gates LLP 599 Lexington Avenue New York, NY 10022 Phone: (212) 536-3900 Email: eric.prager@klgates.com Dated: December 1, 2016 Attorneys for Defendants Expedia, Inc. (DE), Expedia, Inc. (WA) and Orbitz Worldwide, Inc. Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 1 of 11 PageID #: 282 i TABLE OF CONTENTS Page I. Introduction ..........................................................................................................................1 II. Argument .............................................................................................................................1 A. T-Jat Has Not Pleaded that Expedia DE Owns and Operates the Accused Technology ..............................................................................................................1 B. The Generic Statements in the Complaint are Insufficient To Support T- Jat’s Claims that Every Defendant is Responsible for the Accused Technology ..............................................................................................................2 C. Plaintiff Improperly Relies on New Material Not Within its Operative Complaint, and That Material is Likewise Insufficient ...........................................5 D. T-Jat Mischaracterizes Plaintiff’s Argument Regarding the Factual Materials within the “Background” Section of Defendants’ Opening Brief ...........5 III. Conclusion ...........................................................................................................................7 Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 2 of 11 PageID #: 283 ii TABLE OF AUTHORITIES Page(s) Cases Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...............................................................................................................1, 6 Contour Products, Inc. v. Albecker, 2009 WL 1064663 (S.D. Fla. June 2, 2009) ..............................................................................4 C.R. Bard, Inc. v. Guidant Corp., 997 F. Supp. 556 (D. Del. 1998) ................................................................................................3 Energy Marine Servs., Inc. v. DB Mobility Logistics AG, 2016 WL 284432 (D. Del. Jan. 22, 2016) ..............................................................................2, 3 M2M Solutions LLC v. Telit Commc’ns PLC, No. 14-1103-RGA, 2015 WL 4640400 (D. Del. Aug. 5, 2015) ........................................1, 5, 6 Metasearch Systems, LLC v. Expedia, Inc., C.A. 12-1188-LPS (D.I. 12 Answer to Complaint ¶ 35, filed December 7, 2012) ..........................................................................................................................................3 Sprint Commc’ns, L.P. v. Cox Commc’ns, Inc., 896 F.Supp.2d 1049 (D. Kan. 2012) ..........................................................................................4 SRI Int’l LLC v. Internet Security Sys., Inc., 2005 WL 851126 (D. Del. Apr. 13, 2005) .................................................................................4 Zimmerman v. PepsiCo Inc., 836 F.2d at 181 (3d Cir. 1988) ...............................................................................................1, 5 Other Authorities www.expedia.com............................................................................................................................3 Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 3 of 11 PageID #: 284 I. INTRODUCTION The question pending before the Court is whether T-Jat has pleaded facts that plausibly state a claim that the three Defendants are all alter egos or agents of one another. In their moving papers, Defendants showed that T-Jat has not provided sufficient support for its odd theory that a parent company and two subsidiaries all control one another. Defendants also explained that under Iqbal, the Court can (and should) evaluate the plausibility of T-Jat’s allegations in light of the fact that T-Jat has refused to name the correct defendants in this case solely in hopes of gaining a tactical advantage in its opposition to Defendants’ forthcoming motion to transfer. T-Jat attempts to defend its operative complaint by asking the Court to rewrite the factual allegations within that complaint. For example, T-Jat appears to have abandoned its conclusory allegations that Orbitz controls Expedia WA and Expedia DE, thereby implying that the Court should simply ignore those allegations. D.I. 16 at 10-11. T-Jat also asks the Court to rewrite its allegations regarding the parent corporation, Expedia DE. D.I. 16 at 7-10. Finally, T-Jat asks the Court to consider extensive factual material not pleaded. Governing law flatly prohibits T- Jat’s request that this Court rewrite T-Jat’s claims and consider factual material not within the complaint. See, e.g., M2M Solutions LLC v. Telit Commc’ns PLC, No. 14-1103-RGA, 2015 WL 4640400, at *3 (D. Del. Aug. 5, 2015) (Zimmerman v. PepsiCo. Inc., 836 F.2d 173, 181 (3d Cir. 1988)). If T-Jat wants to abandon certain allegations, and if it seeks to support other allegations with additional facts, it must amend its complaint. It may not—as it has done—baselessly allege that every defendant is liable for every action of every other defendant. The Court should grant Defendants’ motion to dismiss. II. ARGUMENT A. T-Jat Has Not Pleaded that Expedia DE Owns and Operates the Accused Technology T-Jat recognizes that its vicarious liability allegations against Expedia DE might fail, so it now contends that a single paragraph in its operative complaint (paragraph 3) actually alleges Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 4 of 11 PageID #: 285 2 that Expedia DE owns and operates the accused server system. D.I. 16 at 5-7. 1 The problem with T-Jat’s argument is that paragraph 3 does not state that Expedia DE owns or operates the accused server system, and other portions of the complaint allege that it is Expedia WA that operates that accused system and engages in the allegedly infringing activities. For example, paragraph 5 states: “Expedia-DE controls or otherwise directs and authorizes the activities of its wholly-owned subsidiary Expedia-WA including the infringing acts alleged herein.” D.I. 10 ¶ 5 (emphasis added). If T-Jat believes that it can plead that Expedia DE owns and operates the accused server system without regard to the actions of Expedia WA, it must amend its complaint to make those allegations so that Defendants can respond accordingly. B. The Generic Statements in the Complaint are Insufficient To Support T-Jat’s Claims that Every Defendant is Responsible for the Accused Technology As Defendants noted in their opening brief, a complaint fails to support piercing the corporate veil unless it contains factual allegations sufficient to support not only “an arrangement . . . between the corporations so that one acts on behalf of another,” but also “that the arrangement relates directly to the matter alleged.” Energy Marine Servs., Inc. v. DB Mobility Logistics AG, 2016 WL 284432, at *3 (D. Del. Jan. 22, 2016) (emphasis added). T-Jat does not address this case law, and it does not identify any allegation in which it pleaded facts showing an arrangement between all three defendants to operate the accused server systems. T-Jat wrongly relies on the statement in Expedia DE’s 10-K that “Expedia, Inc. is an online travel company, empowering … through technology.” D.I. 16 at 5. That vague statement contains no information about any an arrangement between Expedia DE and any other Defendant, much less one “relat[ing] directly to the matter alleged” i.e., the ownership and operation of the accused server systems. 2 T-Jat also relies on an alleged admission, in another case, that Expedia DE “is an online travel company” that “makes travel services available 1 Defendants know that allegation is not true, however, which raises serious concerns. 2 Plaintiff also cites a similar sentence that adds “and its subsidiaries” after “Expedia, Inc.” that statement fails to satisfy T-Jat’s pleading obligation for the same reason. There is no description of any arrangement between the Defendants, much less one relating to the accused technology. Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 5 of 11 PageID #: 286 3 through websites, including www.expedia.com.” D.I. 10 ¶ 3. 3 Again, that statement contains no allegation of any arrangement between the three defendants related to the accused server technology. 4 Moreover, the answer on which T-Jat relies clarifies that it is the “Expedia-branded websites [that] make travel services available.” Metasearch Systems, LLC v. Expedia, Inc., C.A. 12-1188-LPS (D.I. 12 Answer to Complaint ¶ 35, filed December 7, 2012). T-Jat knows that those websites are owned and operated by Expedia WA or its subsidiaries, and not Expedia DE, a fact that has been adjudicated in case law that Defendants’ counsel provided. D.I. 15 Ex. B (email to T-Jat’s counsel and attached opinion from New York State tax appellate board). T-Jat also tries to justify its allegations on the necessary relationships between companies within the same corporate family. T-Jat relies, for example, on the alleged overlap between executive officers (based in Bellevue, WA) for the various defendants, and the common headquarters (in Bellevue, WA) for all the defendants. D.I. 16, at 8. The problem with that argument—as Defendants pointed out in their moving papers—is that this Court has repeatedly held that shared officers or headquarters are a common feature of related corporations and are insufficient to establish agency or alter ego liability. D.I. 14 at 6-7 (citing C.R. Bard, Inc. v. Guidant Corp., 997 F. Supp. 556, 561 (D. Del. 1998); Energy Marine Servs., Inc. v. DB Mobility Logistics AG, No. 15-24-GMS, 2016 WL 284432, at *1, *3-4 (D. Del. Jan. 22, 2016)). This case law is directly on point, and it makes clear that T-Jat’s factual allegations are insufficient to support its alter ego theory of liability. The same is true regarding T-Jat’s allegations that 3 It is amusing that T-Jat initially relied on the Cronos case as evidence that Expedia DE is responsible for www.expedia.com, but when Defendants pointed to Expedia DE’s answer in that case, in which it explained that it does not own or operate www.expedia.com, T-Jat shifted gears and decided to rely on a vague statement in the Metasearch case. Compare D.I. 16 at 6 (citing supportively to Expedia’s answer in the Metasearch case), with D.I. 15 Ex. C (emailing Expedia regarding purported admissions in Expedia’s answer in Cronos), and D.I. 16 at 6 n.3 (denigrating Defendants’ reference to the information it provided about Expedia DE’s answer in Cronos as “unsubstantiated”). 4 Plaintiff did not rely upon the 10-K statement regarding “entities we control” in the complaint. Moreover, such a statement does not indicate any specific control or arrangement directly addressing the accused flight booking functionality of the two mobile websites and two mobile applications at issue. Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 6 of 11 PageID #: 287 4 Expedia DE is the “primary beneficiary” of subsidiaries’ profits. D.I. 16 at 8. A publicly traded parent company necessarily is the “primary beneficiary” of its subsidiaries’ profits. That fact does not show that the necessary arrangement to jointly operate the accused technology. See, e.g., Contour Products, Inc. v. Albecker, No. 08-60575-CIV, 2009 WL 1064663, at *4 (S.D. Fla. June 2, 2009) (citing cases where an agency relationship was not found, including where the parent “reported the subsidiary’s profits and losses on a consolidated financial statement”). The case law on which plaintiff relies is inapposite. In SRI Int’l LLC v. Internet Security Sys., Inc., both parties submitted and relied on evidence from outside the pleadings, therefore the Court transformed the motion to dismiss to “a motion for summary judgment.” No. 04-1199- SLR, 2005 WL 851126, at *2 (D. Del. Apr. 13, 2005). The Court denied dismissal, without prejudice, because the plaintiff had submitted evidence showing that the corporate parent satisfied regulatory obligations of the subsidiary and otherwise acted on its behalf. Id. at *1, *3. Here, by contrast, there are no such allegations related to the relationship between Expedia DE and Expedia WA. D.I 10 ¶¶ 3-5. Moreover, T-Jat does not offer any factual allegations to justify its conclusory allegations that Orbitz controls Expedia DE or Expedia WA. D.I. 10 ¶ 6-7. Here, unlike in SRI, T-Jat’s alter ego and agency allegations are conclusory and based solely on vague statements with no nexus to the accused technology. Accordingly, SRI does not support T-Jat’s arguments. Finally, the insufficiency of T-Jat’s allegations are laid bare by the inconsistencies within its own reply. When T-Jat finally addresses which entities are allegedly responsible for which products, it suggests that it is accusing Expedia DE and Expedia WA of liability for the claims directed to the servers that handle the Expedia mobile application and mobile website, and it is accusing Orbitz for the claims directed to the servers that handle the Orbitz mobile application and mobile website. D.I. 16 at 10-11. In its complaint, however, T-Jat alleges that Orbitz is responsible for all of Expedia DE and Expedia WA’s actions, and vice versa. D.I. 10 ¶ 14. Thus, T-Jat’s arguments at pages 10-11 of its brief indirectly concede that it has not, and cannot, support its broad alter ego and agency allegations. Rule 12 is designed to test such unsupported Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 7 of 11 PageID #: 288 5 allegations and remove them from the case before they create unnecessary cost and burden. The Court should dismiss T-Jat’s complaint, which will require T-Jat to focus its claims on the defendants that actually own and operate the accused technology and thereby minimize expense and burden for all parties sand for the Court. C. Plaintiff Improperly Relies on New Material Not Within its Operative Complaint, and That Material is Likewise Insufficient In an effort to bolster its operative complaint, T-Jat wrongly offers new factual allegations in its opposition papers. “It is axiomatic that the complaint may not be amended by the briefs in opposition to a motion to dismiss” M2M Solutions, 2015 WL 4640400, at *3 (quoting Zimmerman v. PepsiCo Inc., 836 F.2d at 181 (3d Cir. 1988)). Of particular concern is Plaintiff’s factual declaration, which includes exhibits nowhere mentioned or relied upon in the operative complaint. D.I. 16 at 5 n.1 (describing exhibits “attached to the accompanying Melman Declaration” on which T-Jat relies, which include material from Standard and Poor, an investor report, an Expedia website, and Plaintiff’s analysis of network traffic). As this Court has held, supplementation of a complaint through a declaration is improper, and these additional materials “are not entitled to consideration in the pleading stage.” M2M Solutions, 2015 WL 4640400, at *3. The Court should therefore disregard this material. Moreover, that additional evidence contains the same type of vague and generic statements discussed above, which fail to show any arrangement between Expedia DE, Expedia WA, and Orbitz with respect to the accused server systems. D. T-Jat Mischaracterizes Plaintiff’s Argument Regarding the Factual Materials within the “Background” Section of Defendants’ Opening Brief T-Jat objects to the factual materials in the “background” section of Defendants’ opening brief, but in doing so, it attacks a strawman. T-Jat suggests that Defendants, by providing detailed factual materials showing that Expedia DE is simply a holding company, are asking the Court to dismiss T-Jat’s allegations against Expedia DE on the grounds that it is only a holding company. D.I. 16 at 6 (“Defendants now contend …that Expedia-Delaware should be dismissed Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 8 of 11 PageID #: 289 6 because it is merely a ‘holding company’”); id. at 7. (“[T]he materials cited by Defendants attempt to raise questions of fact to rebut T-Jat’s allegations . . .”). T-Jat’s arguments miss the mark. Defendants move to dismiss because Plaintiff alleges—without any factual support—that every defendant simultaneously controls, and is controlled by, each other defendant. See D.I. 10 ¶¶ 13-14 (pleading that individual defendants “were at all relevant times the agents, affiliates, alter egos, partners, assignees, successors-in-interest, or principals, of each other”) (emphasis added). There is nothing, for example, to justify T-Jat’s baseless assertion that Orbitz is responsible for every action of Expedia DE or Expedia WA. See supra pp. 4-5. Defendants provided the Court with copies of the parties’ communications leading up to this motion to show that T-Jat’s insufficient allegations are not grounded in uncertainty as to how Defendants operate. Id. Instead, as the communications between T-Jat and Defendants show, T-Jat is simply grasping at straws in the vain hope that its unfounded alter ego and agency allegations might help in defeating the forthcoming motion to transfer. The Court may take that into account when deciding whether T-Jat’s vague and conclusory allegations have sufficient factual material to justify T-Jat’s allegations. Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009) (instructing the district courts to use their “judicial experience and common sense” to determine if a plaintiff has stated a claim). The fact that T-Jat has made insufficient allegations for an improper purpose, after receiving facts that would have allowed it to name the correct entities, bolsters Defendants’ argument for dismissal. 5 5 Contrary to T-Jat’s argument, Defendants have not introduced materials outside the pleadings to contradict T-Jat’s factual allegations. For purposes of this motion to dismiss, Defendants take all of T-Jat’s factual allegations as true. Defendants provided the communications between the parties to show T-Jat’s motivation for naming the wrong parties. In particular, T-Jat raised questions about Expedia DE and its role regarding the accused technology. Defendants’ counsel answered them and provided factual support for its answers. Rather than adjust its allegations accordingly, T-Jat simply searched for vague statements in public documents to try to overcome the detailed factual information provided. T-Jat then used those vague statements as justification for its conclusory allegations that every defendant in this case is an alter ego of every other defendant. As shown above, those allegations are insufficient as a matter of law. Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 9 of 11 PageID #: 290 7 III. CONCLUSION For the reasons stated above, Defendants respectfully request that the Court grant Defendants’ motion and dismiss Plaintiff’s complaint. Alternatively, the Court may defer the pending motion to dismiss until after it decides whether to grant Defendants’ forthcoming motion to transfer. Dated: December 1, 2016 K&L GATES LLP /s/ Steven L. Caponi Steven L. Caponi, Esq. (#3484) 600 N. King Street Suite 901 Wilmington, DE 19801 Phone: (302) 416-7080 steven.caponi@klgates.com Attorneys for Defendants Expedia, Inc. (DE), Expedia, Inc. (WA) and Orbitz Worldwide, Inc. -and- Theodore J. Angelis Ben Hellerstein K&L Gates LLP 925 Fourth Avenue, Suite 2900 Seattle, WA 98104 Telephone: (206) 623-7580 Email: theo.angelis@klgates.com ben.hellerstein@klgates.com Eric A. Prager K&L Gates LLP 599 Lexington Avenue New York, NY 10022 Phone: (212) 536-3900 Email: eric.prager@klgates.com Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 10 of 11 PageID #: 291 CERTIFICATE OF SERVICE I hereby certify that on December 1, 2016, I caused the foregoing to be electronically filed with the Clerk of the Court using CM/ECF, which will send notification of such filing to all registered participants. /s/ Steven L. Caponi Steven L. Caponi (#3484) Case 1:16-cv-00581-RGA Document 19 Filed 12/01/16 Page 11 of 11 PageID #: 292